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Will Yellen Blink This Time?

September 2016

If Fed Chair Janet Yellen surprises and goes for a September rate hike, a dollar rally could add more pressure on crude oil

Stocks Under Pressure
Stock markets were vulnerable to losses last week of August as the combination of Dollar strength and renewed hopes over the Fed raising US rates enticed sellers to install repeated rounds of selling. Although the period of uncertainty over when the Fed may raise rates has been dispelled, the persistent concerns over the global economy and depressed oil prices could ensure stocks remain depressed moving forward. FXTM Research Analyst Lukman Otunuga noted that with the attributes of a bear trend still visible, it could take an unexpected catalyst to trigger a heavy selloff in global stocks.

Gold Stuck In A Range
Gold has been struggling to break free of the range it has been stuck within for more than a month now. The weaker dollar has provided some if not the only support during the past couple of weeks as the yellow metal continues to show signs of buying fatigue following the initial extension after the Brexit vote, says Ole Hansen, Head of Commodity Strategy at Saxo Bank. Central banks’ continued experiment with negative yields and subdued growth has triggered demand for alternative assets such as investment metals. The rally this year has therefore been driven more by investment demand than physical demand.

Following Janet Yellen’s hawkish comments last month gold violently vibrated between losses and gains before sinking lower. FXTM’s Otunuga notes that this metal remains extremely sensitive to US rate hike expectations and could be poised for further declines if bets mount over the Fed breaking the tradition of caution by raising rates. Even if risk aversion attempts to keep the precious metal buoyed, the viscously appreciating Dollar may simply cap further upside gains. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has crossed to the downside. Bears are currently in control and a decisive break down below $1315 could open a path towards $1285.

GBPUSD sinks below 1.3100
Sterling descended lower on August 30 with the GBPUSD sinking below 1.3100 as the combination of Sterling vulnerability and Dollar resurgence from renewed rate hike hopes, enticed sellers to install repeated rounds of selling. It is becoming increasingly clear that Brexit has left the Sterling inherently pressured with the persistent uncertainty haunting investor attraction towards the currency.

Oil Again Under Pressure
Talks of a potential deal from members of the OPEC to freeze production sent oil prices into a bull market territory last month, but these hopes were dampened after Iran said it still hasn’t decided whether it will attend the informal talks in Algiers next month. Fundamentals have been clearly ignored in August as price action was driven solely by verbal interventions; it remains to be seen whether this is going to be converted into actions. FXTM’s Otunuga notes that another disappointing meeting similar to April’s talks in Doha will not only lead to lower oil prices, but also threatens OPEC’s influence on prices going forward.

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